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Identifying Bitcoin scams

Werner van Rooyen
27 Sep 2016•
3 minute read

Bitcoin is attractive to scammers for the same reason it’s attractive to you: it’s fast, it’s international, and it’s irreversible. So as Bitcoin usage has grown, we have seen more and more Bitcoin scammers disappear with user funds.

The following are some of the most persistent Bitcoin scams.

Bitcoin Ponzi, HYIP or MLM schemes

These schemes attract people with low or no subscription fees and promises of sky-high returns on their deposits. They often rely on existing investors signing up new ones, which is the only source of revenue or growth. As with all Ponzi schemes, early investors get paid with the money from later investors.

Inevitably when new investors stop signing up and depositing, the scheme collapses, since no more funds can be paid out.

What to look out for

These are some of the warning signs that you might be dealing with an illegal scheme:

Promises of very high returns/interest

Guarantees that you "can't lose money"

Little verifiable information on company and owners

Difficulties in withdrawing your funds

Social signup links with high bonuses

Sense of urgency to "invest now"

Bitcoin phishing scams

Phishing scams are common in the online world. This is when a scammer creates emails, messages, login pages and/or websites that resemble a legitimate company. Once users enter their information (like login username and password) on the fake website, the scammers have access to the users’ accounts. If it is an account where Bitcoin is stored, the scammers can easily make off with the money.

Where users have the same password used on multiple sites, the scammers can often gain access to other sites with more sensitive information.

How to prevent phishing scams

Don't click on suspicious emails

Ensure the correct spelling of the website address

Use a unique, strong password for every website account

Use a reputable password management tool

Enable two-factor authentication on sites that support it

Report suspicious emails to your email provider (as phishing)

Report suspicious websites to the respective web hosting company

Bitcoin mining scams

Bitcoin is generated through the process of mining, which confirms Bitcoin transactions on the Blockchain. Mining requires great amounts of energy, expensive equipment and upfront capital. Bitcoin mining investments emerged out of this need, whereby many users can invest in a mining scheme and get a percentage of future mining proceeds.

There are some legitimate Bitcoin mining schemes, but there are far more mining scams than legitimate outfits. Since it is difficult for most investors to confirm if a mining scheme actually owns mining gear (or does any mining at all), there are many websites that claim to mine but simply take investor funds, pay high returns for a while to build trust and then simply disappear.

Avoiding mining scams

These are some of the things to be on the lookout for:

Inability to see or verify the proof of ownership of any mining equipment

If you are putting your money anywhere, it's up to you to do your own research and investigation (Google and Reddit can take you far). And remember: if something sounds too good to be true, it probably is.

Werner van Rooyen

Werner heads up Marketing and Communications at Luno. His passions include payments, e-commerce, technology, marketing and design: something that he has been fortunate enough to do on three different continents. Werner has lived and worked in South Africa, the United States, Indonesia, Taiwan and China.

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